Sydney misses the boat on ferry reform

The NSW government has squandered a unique opportunity to get ferry reform right. In May this year, transport minister Gladys Berejiklian announced that Sydney Ferries was to be franchised. From an initial list of 28 companies, the government has culled it to the final three. The winner will run the ferries.

This reform has been touted as a game changer for commuters, but in reality not much is changing. The government will still own the ferries and will still control prices, routes and service obligations. A private company will simply be contracted to operate the vessels.

In order to get real reform, Sydney’s ferries need free competition, not another monopoly, the Centre for Independent Studies concludes in a report to be released tomorrow.

The NSW government currently spends upwards of $70 million a year propping up Sydney Ferries, a subsidy that results in low-income taxpayers finance commuters from some of Sydney’s wealthiest areas.

Riddled by high labour and maintenance costs, Sydney Ferries consistently records deficits, despite subsidies covering more than half its expenses. Costs continue to rise faster than ticket revenue, which then forces the government to siphon even more tax dollars to keep the ferries afloat.

Sydney Ferries transports fewer passengers today than it did a decade ago. Patronage has increased just 10 per cent since government took control 60 years ago compared with trains, which have grown more than 10 per cent in the past six years alone.

Both Labor and the Coalition acknowledge that reform is needed. The problem is that the underlying causes are misunderstood.

Monopoly and regulation are the root cause of the ferries’ woes.  But the government’s plans tackle neither. Instead, the focus is almost entirely on getting more passengers onto the ferries.

Hiring a private company to do what was previously performed by public employees achieves little. The government will simply be directing subsidies to the franchisee instead of Sydney Ferries.

The ferry market should be a free market. It should not be given any assistance, and more importantly, it should not be hampered by excessive regulations and controls.

Evidence suggests that commuters could receive better, faster services supplied at lower cost and at no cost to the public purse. What’s more, the evidence is in our own backyard.

Private fast ferries operating from Manly to Circular Quay have shown over the past three years that the ferries can be run successfully as a commercial business and can provide frequent services to more commuters.

Manly Fast Ferry and Sydney Fast Ferries compete on the Manly to Circular Quay route without subsidy and without controls. Since they replaced the government’s costly JetCats, patronage has grown to approximately 4,000 trips a day – roughly 80 per cent growth in three years.

While a regular ferry to Manly costs $6.60, this is not the full cost of the journey because subsidies keep fares artificially low. Ticket revenue only accounts for 47 per cent of expenses, meaning the full cost of the journey is actually $13.97. By comparison, a private fast ferry can get you there in almost half the time for $8.50 – a saving of $5.47 to the NSW taxpayer.

The important message to draw from this experience is that government need not spend a fortune on a new franchise agreement. Left to their own devices, two private operators managed to turn what was the most costly part of Sydney Ferries’ services into a profitable, customer-focused service.

Competition forced down costs and prices, and encouraged ferry operators to provide fast, innovative services to a large number of commuters.

If the government wants lasting progress, it should step out of the ferries. Entrepreneurs will then be free to experiment with new types of vessels, routes, technologies, ancillary services and other innovations.

Releasing the growth potential currently locked out could fundamentally change the pattern of travel across Sydney Harbour.

Alexander Philipatos is a Policy Analyst at The Centre for Independent Studies.